Abstract:Decentralized exchanges typically give traders no execution guarantee until a block is finalized. In the meantime, external prices move, traders strategically delay submission, and block producers can influence inclusion and ordering. We introduce FirstSwap, a DEX built on a constant-function market maker pricing curve that gives traders an early pre-approval before consensus, guaranteeing inclusion and execution within their submitted price limit, with final ordering determined by limit prices rather than by a block producer. We demonstrate the benefits of trade pre-approvals in an economic model combining auction theory with CEX-DEX arbitrage. When the CEX price changes gradually, FirstSwap rewards earlier traders with better prices, discouraging strategic delay and yielding higher social welfare and gains to AMM liquidity providers than a batch auction. When the CEX price jumps abruptly, FirstSwap yields higher welfare and smaller AMM losses than fair ordering. The central challenge is delivering fast trade pre-approvals without consensus. We introduce a decentralized, scaled admissibility protocol under which each validator reserves only a fraction of the available liquidity at every price. A trader obtains approval in a single round of messages with a quorum of validators. Somewhat surprisingly, despite Byzantine validators who may approve trades arbitrarily, we show that all quorum-certified trades are jointly admissible and execute within their limits. Our protocol extends naturally to a setting where buy and sell orders can be pre-approved against each other before a block is finalized. Submission history Access Paper: View PDF HTML (experimental) TeX Source Additional Features Audio Summary Current browse context: References & Citations Google Scholar Semantic Scholar Bookmark Institution arXivLabs is a framework that allows collaborators to develop and share new arXiv features directly on our website. Both individuals and organizations that work with arXivLabs have embraced and accepted our values of openness, community, excellence, and user data privacy. arXiv is committed to these values and only works with partners that adhere to them. Have an idea for a project that will add value for arXiv's community? Learn more about arXivLabs.
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FirstSwap: Pre-Consensus Trade Approvals for Decentralized Market Design
arXiv:2611.10254v1 Announce Type: new Abstract: Decentralized exchanges typically give traders no execution guarantee until a block is finalized. In the meantime, external prices move, traders strategically delay submission, and block producers can influence inclusion and ordering. We introduce FirstSwap, a DEX built on a constant-function market maker pricing curve that gives traders an early pre-approval before consensus, guaranteeing inclusion and execution within their submitted price limit, with final ordering determined by limit prices rather than by a block producer. We demonstrate the benefits of trade pre-approvals in an economic model combining auction theory with CEX-DEX arbitrage. When the CEX price changes gradually, FirstSwap rewards earlier traders with better prices, discouraging strategic delay and yielding higher social welfare and gains to AMM liquidity providers than a batch auction. When the CEX price jumps abruptly, FirstSwap yields higher welfare and smaller AMM losses than fair ordering. The central challenge is delivering fast trade pre-approvals without consensus. We introduce a decentralized, scaled admissibility protocol under which each validator reserves only a fraction of the available liquidity at every price. A trader obtains approval in a single round of messages with a quorum of validators. Somewhat surprisingly, despite Byzantine validators who may approve trades arbitrarily, we show that all quorum-certified trades are jointly admissible and execute within their limits. Our protocol extends naturally to a setting where buy and sell orders can be pre-approved against each other before a block is finalized.
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